Investing in property is one of the most important financial decisions. The value of owning a house has remained unchanged for decades. The prima facie fact that demand and value of the properties are ever growing, makes it one of the most preferred financial investments of all times. It is a great way to accumulate wealth and have increased cash flow. Investing in real estate has many advantages as the value of the property appreciates over the period of time, recurring cash flow by monthly rentals and most importantly tax benefits. Let us break it down for you:
Under section 80 C you can claim tax benefits on the amount paid as repayment of the principal amount of the home loan. The maximum tax benefit is Rs. 1.5 lakh allowed after the completion of the construction and receipt of the completion certificate.
This section allows homebuyers to claim tax benefits on interest paid on home loans. The maximum tax benefit of Rs 2 lakh can be availed under Section 24 B for properties that are self-occupied or vacant. However, if the property is not self-occupied and is rented out then the entire home loan interest is allowed to be claimed as the deduction. The deduction of 2 lakh is reduced to Rs. 30,000 if the construction is not completed within 5 years from the end of the financial year in which the home loan was availed. The deduction can only be claimed in the financial year in which the construction of the property is completed.
For first time home buyers, section 80EE provides tax benefit of up to Rs 50,000 per financial year over and above the deduction of Rs 2lakh under Section 24 and Rs. 1.5 lakh under section 80C. This can be claimed every financial year until the home loan is fully repaid. The deduction could be availed only if the value of the property is less than Rs 50 lakh and the value of home loan is less than Rs 35 lakh. The benefit can be availed from 2016-2017 financial year onwards.
Capital gains are the profits you receive from the sale of the property. Just like any other income, the amount received from selling of property is liable to be taxed. However, it comes with a few tax benefits. Short term capital gains are treated and taxed as ordinary income depending on the tax bracket you fall into. However, long term capital gains would depend on your income plus marital status. If you have earned from the sale of the residential house you can avail an exemption from taxation by depositing the amount of gain in the capital gain scheme account. You need to invest in a residential house within a span of 2 years of the receipt of the gain.
If the property purchased is sold within 5 years, the tax benefit availed for the principal amount of the home loan will be reversed and would be considered as your income. Deduction for interest amount is not reversed.
The above tax benefits are the game changers if utilized correctly and can make you a savvy investor.